FIN 534 Test 3

FIN 534 Test 3 - FIN 534 Test 3 Question 1 Which of the...

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FIN 534 Test 3 Question 1 Which of the following statements is CORRECT? Answer Correct Answer: If a loan has a nominal annual rate of 8%, then the effective rate will never be le than 8%. Question 2 Which of the following statements is CORRECT? Answer Correct Answer: Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. Question 3 You are considering two equally risky annuities, each of which pays \$5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

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Answer Correct Answer: A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ. Question 4 You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? Answer Correct Answer: The discount rate Question 5 Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? Answer Correct Answer: The periodic rate of interest is 1.5% and the effective rate of interest is greater t 6%. Question 6
Which of the following statements is CORRECT? Answer Correct Answer: Time lines can be constructed where some of the payments constitute an annuity bu others are unequal and thus are not part of the annuity. Question 7 You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? Answer

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FIN 534 Test 3 - FIN 534 Test 3 Question 1 Which of the...

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